On September 11, 1896, the American Oak Leather Company, a corporation of the state of Ohio, filed in the circuit court of the United States for the northern district of Illinois a bill of complaint against C. H. Fargo & Company, a corporation of the state of Illinois; the United States Rubber Company, a corporation of the state of New Jersey; L. Candee & Company, a corporation of the state of Connecticut; John W. Arnold, United States marshal for the northern district of Illinois, and the Metropolitan National Bank, a national banking association.
The bill alleged that the complainant was a judgment creditor of C. H. Fargo & Company, an insolvent corporation; that judgments by confession against said C. H. Fargo & Company had been entered in the circuit court of the United States on August 6, 1896, for large amounts in favor of the United States Rubber Company and L. Candee & Company; that, on the same day, an assignment was made by C. H. Fargo & Company of all its book accounts to said rubber companies; that a judgment by confession had been entered on August 6, 1896, for a large amount, in favor of the Metropolitan National Bank, and on the same day deeds to said bank had been executed by Fargo & Company, conveying its factory at Dixon, Illinois; that executions had been issued on said judgments and levied upon all the tangible assets of C. H. Fargo & Company; that said judgments were illegal because given and taken with intent to defraud the complainant and other creditors of C. H. Fargo & Company. The bill prayed that the said judgments, executions, assignment, and deeds should be set aside, and that the assets of C. H. Fargo & Company should be applied, through a receiver, to the payment of its bona fide creditors.
Subsequently other creditors to a large amount filed intervening petitions, and joined in the complainant's prayer for relief. Answers were filed by the several defendants, denying the allegations of fraud; and thereupon the court referred the case to Henry W. Bishop, as a master in chancery, 'to take proofs herein and report the same, together with his conclusions thereon, as to the facts only.' An order was also entered appointing a receiver, and upon appeal to the circuit court of appeals for the seventh circuit this order was affirmed. 27 C. C. A. 118, 53 U.S. App. 444, 82 Fed. Rep. 248.
On April 17, 1899, after taking a large amount of testimony, and a protracted hearing, the master filed a report, of which the important portions were as follows:
'There was due January 6, 1896, to Candee & Company, upon the notes of C. H. Fargo & Company (given in settlement in November, 1895), the sum of $44,900, and on the same date there was due from the Fargo Company to the United States Rubber Company on open account for proceeds of sale of consigned goods the sum of $141,537.13.
'It is shown by the testimony, and I so find, that about January 2, 1896, the C. H. Fargo Company, anticipating difficulty in meeting its regular obligations maturing during that month, applied to one Charles L. Johnson, who represented both the Candee Company and the United States Rubber Company, for a loan of $50,000, representing that the Fargo Company was perfectly solvent, and that this accommodation would relieve it from its temporary embarrassments and enable it to go on with its business.
'This application was granted, and on January 6, 1896, Johnson agreed, acting for L. Candee Company, to lend the Fargo Company the sum of $50,000 for six months, upon the understanding that this loan and the indebtedness of $44,900 upon the notes previously given as aforesaid, and the balance due the United States Rubber Company, and which might become due it, should be secured in such way as might be satisfactory to their counsel, Mr. Beale, of the law firm of Isham, Lincoln, & Beale.
'The proposition was accepted on the 6th day of January, 1896, and it was agreed and was arranged between the parties as follows:
'First. That the $50,000 should be advanced by the Fargo Company by L. Candee & Company, partly on that date and during the succeeding two weeks.